<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-7275
- --------------------------------------------------------------------------------
CONAGRA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant, as specified in charter)
Delaware 47-0248710
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One ConAgra Drive, Omaha, Nebraska 68102-5001
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(402) 595-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NA
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of issuer's common stock, as of December 26, 1999
was 492,444,582.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- ------------------------------
NOVEMBER 28, NOVEMBER 29, NOVEMBER 28, NOVEMBER 29,
1999 1998 1999 1998
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 6,602.9 $ 6,404.4 $ 13,196.5 $ 12,887.8
Costs and expenses
Cost of goods sold * 5,461.4 5,298.5 11,078.8 10,864.4
Selling, administrative and general expenses * 731.8 658.9 1,464.1 1,322.2
Interest expense 77.4 91.0 153.6 167.4
Restructuring/Impairment charges 30.2 -- 33.7 --
----------- ----------- ----------- -----------
6,300.8 6,048.4 12,730.2 12,354.0
----------- ----------- ----------- -----------
Income before income taxes 302.1 356.0 466.3 533.8
Income taxes 114.8 137.0 177.2 205.5
----------- ----------- ----------- -----------
Net income $ 187.3 $ 219.0 $ 289.1 $ 328.3
=========== =========== =========== ===========
Income per share -- basic $ .39 $ .47 $ .61 $ .70
=========== =========== =========== ===========
Income per share -- diluted $ .39 $ .46 $ .60 $ .69
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Other restructuring-related items for the thirteen weeks and twenty-six weeks
ended November 28, 1999 include: accelerated depreciation of $33.8 million
and $64.8 million, respectively, included in cost of goods sold; $7.5 million
and $11.5 million, respectively, of accelerated depreciation included in
selling, administrative and general expenses; and inventory markdowns of
$25.1 million and $33.7 million, respectively, included in cost of goods
sold. For both the thirteen weeks and twenty-six weeks ended November 28,
1999, restructuring plan implementation costs included in selling,
administrative and general expenses were $7.8 million.
See notes to the condensed consolidated financial statements.
2
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- -----------------------------
NOVEMBER 28, NOVEMBER 29, NOVEMBER 28, NOVEMBER 29,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 187.3 $ 219.0 $ 289.1 $ 328.3
Other comprehensive income/(loss):
Currency translation adjustment 2.1 23.1 (4.4) 5.2
----------- ----------- ----------- -----------
Comprehensive income $ 189.4 $ 242.1 $ 284.7 $ 333.5
=========== =========== =========== ===========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the condensed consolidated financial statements.
3
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions except per share amount)
(unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
NOVEMBER 28, MAY 30, NOVEMBER 29,
1999 1999 1998
-------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9.6 $ 62.8 $ 44.3
Receivables, less allowance for doubtful accounts
of $85.9, $60.0 and $80.6 2,527.6 1,637.5 2,687.0
Inventories 4,378.8 3,639.9 4,189.6
Prepaid expenses 305.2 315.9 318.7
---------- ----------- ----------
Total current assets 7,221.2 5,656.1 7,239.6
---------- ----------- ----------
Property, plant and equipment 6,447.1 6,213.8 6,086.7
Less accumulated depreciation (2,887.4) (2,599.6) (2,486.0)
---------- ----------- ----------
Property, plant and equipment, net 3,559.7 3,614.2 3,600.7
---------- ----------- ----------
Brands, trademarks and goodwill, net 2,384.0 2,408.7 2,640.7
Other assets 412.7 467.1 465.9
---------- ----------- ----------
$ 13,577.6 $ 12,146.1 $ 13,946.9
========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,760.9 $ 837.9 $ 3,432.1
Current installments of long-term debt 20.5 21.1 16.4
Accounts payable 2,129.5 2,036.5 1,823.9
Advances on sales 229.4 1,191.7 253.9
Other accrued liabilities 1,464.1 1,299.2 1,456.0
---------- ----------- ----------
Total current liabilities 6,604.4 5,386.4 6,982.3
---------- ----------- ----------
Senior long-term debt, excluding current installments 1,851.2 1,793.1 1,854.0
Other noncurrent liabilities 802.5 782.8 784.6
Subordinated debt 750.0 750.0 750.0
Preferred securities of subsidiary company 525.0 525.0 525.0
Common stockholders' equity
Common stock of $5 par value, authorized 1,200,000,000
shares; issued 524,071,467, 519,648,673 and 519,547,668 2,620.4 2,598.2 2,597.7
Additional paid-in capital 161.9 219.4 350.3
Retained earnings 1,486.1 1,369.8 1,507.7
Foreign currency translation adjustment (70.3) (65.9) (62.4)
Less treasury stock, at cost, common
shares 31,789,174, 31,475,678 and 30,197,659 (757.3) (749.9) (710.6)
---------- ----------- ----------
3,440.8 3,371.6 3,682.7
Less unearned restricted stock and value of 15,941,851,
17,184,831 and 19,168,681 common shares held
in Employee Equity Fund (396.3) (462.8) (631.7)
---------- ----------- ----------
Total common stockholders' equity 3,044.5 2,908.8 3,051.0
---------- ----------- ----------
$ 13,577.6 $ 12,146.1 $ 13,946.9
========== =========== ==========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the condensed consolidated financial statements.
4
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
TWENTY-SIX WEEKS ENDED
-----------------------------
NOVEMBER 28, NOVEMBER 29,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 289.1 $ 328.3
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and other amortization 224.6 210.8
Goodwill amortization 31.9 34.2
Restructuring/impairment charges and other restructuring-related
charges (includes accelerated depreciation) 151.5 --
Other noncash items (includes nonpension postretirement benefits) 51.8 50.0
Change in assets and liabilities before effects
from business acquisitions (2,381.8) (2,494.7)
-------- ---------
Net cash flows from operating activities (1,632.9) (1,871.4)
------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (223.4) (274.2)
Payment for business acquisitions (14.3) (401.4)
Sale of businesses and property, plant and equipment 27.0 7.2
Notes receivable and other items (21.4) (10.6)
--------- ---------
Net cash flows from investing activities (232.1) (679.0)
--------- ---------
Cash flows from financing activities:
Net short-term borrowings 1,908.1 2,571.5
Proceeds from issuance of long-term debt 64.7 595.2
Repayment of long-term debt (12.4) (532.1)
Cash dividends paid (171.8) (144.7)
Cash distributions of pooled companies -- (1.2)
Employee Equity Fund stock transactions -- 6.4
Other items 23.2 (8.8)
--------- ---------
Net cash flows from financing activities 1,811.8 2,486.3
--------- ---------
Net change in cash and cash equivalents (53.2) (64.1)
Cash and cash equivalents at beginning of period 62.8 108.4
--------- ---------
Cash and cash equivalents at end of period $ 9.6 $ 44.3
========= =========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to the condensed consolidated financial statements.
5
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999
(COLUMNAR DOLLARS IN MILLIONS)
1. ACCOUNTING POLICIES
The unaudited interim financial information included herein reflects
normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of operations,
financial position, and cash flows for the periods presented. These
consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Company's fiscal 1999 annual report on Form 10-K.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for other interim periods or
the full year.
Certain prior year amounts have been reclassified in order to conform
to current year classifications.
2. OPERATION OVERDRIVE
During the fourth quarter of fiscal 1999, the Company approved a
36-month restructuring plan in connection with its previously announced
initiative, "Operation Overdrive." The restructuring plan is aimed at
eliminating overcapacity, streamlining operations and improving
profitability through margin improvement and expense reductions. The
total pre-tax charge of the plan is presently estimated at $880
million, with a pre-tax charge recorded to-date of $592.3 million. In
accordance with generally accepted accounting principles, the remaining
cost will be recognized when employees are notified of separation or
when appropriate restructuring plan costs result in accruable expenses.
Of the $592.3 million recognized to-date, $440.8 million ($337.9
million net of tax) was recognized in fiscal 1999, $47.1 million ($29.2
million net of tax) was recognized in the first quarter of fiscal 2000,
with the remaining $104.4 million ($64.7 million net of tax) recognized
in the second quarter of fiscal 2000. Fiscal 2000 second quarter
charges were as follows:
<TABLE>
<CAPTION>
PACKAGED REFRIGERATED AGRICULTURAL
FOODS FOODS PRODUCTS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accelerated depreciation $ 40.0 $ 1.3 $ -- $ 41.3
Inventory markdowns 14.5 -- 10.6 25.1
Restructuring plan
implementation costs 2.6 4.4 .8 7.8
Restructuring/Impairment charges 11.4 12.2 6.6 30.2
-------- -------- -------- --------
Total $ 68.5 $ 17.9 $ 18.0 $ 104.4
======== ======== ======== ========
</TABLE>
6
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999
(COLUMNAR DOLLARS IN MILLIONS)
2. OPERATION OVERDRIVE (CONTINUED)
For the twenty-six weeks ended November 28, 1999, the Company has
recognized $151.5 million ($93.9 million net of tax) for
restructuring/impairment charges and other restructuring-related
charges as follows:
<TABLE>
<CAPTION>
PACKAGED REFRIGERATED AGRICULTURAL
FOODS FOODS PRODUCTS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Accelerated depreciation $ 67.4 $ 8.9 $ -- $ 76.3
Inventory markdowns 14.5 .1 19.1 33.7
Restructuring plan
implementation costs 2.6 4.4 .8 7.8
Restructuring/Impairment charges 12.8 12.6 8.3 33.7
-------- -------- -------- -------
Total $ 97.3 $ 26.0 $ 28.2 $ 151.5
======== ======== ======== =======
</TABLE>
The second quarter and year-to-date charges are reflected in the
Company's Consolidated Statements of Earnings as follows: accelerated
depreciation of $33.8 million and $64.8 million, respectively, are
included in cost of goods sold; accelerated depreciation of $7.5
million and $11.5 million, respectively, are included in selling,
administrative and general expenses; inventory markdowns are included
in cost of goods sold; plan implementation costs (primarily third-party
consulting costs) are included in selling, administrative and general
expenses; and restructuring/impairment charges are reflected as such
and result from asset impairments, employee related costs and
contractual termination costs. Asset impairment charges, year-to-date,
are primarily reflected in the Company's Refrigerated Foods and
Agricultural Products segments.
Certain assets to be disposed of that are not immediately removed from
operations are depreciated on an accelerated basis over their remaining
useful lives. Inventory markdowns represent losses on the carrying
value of non-strategic inventory resulting from the closure of
facilities and discontinuation of certain products.
In association with the restructuring plan, the Company has, to date,
closed/sold a total of seven production facilities, 19 non-production
locations (e.g., storage, distribution, administrative, etc.) and eight
non-core businesses. The historical operating results and gains/losses
associated with sold businesses or facilities were not material.
Approximately 6,700 employee separations will occur as a result of the
restructuring plan, primarily in manufacturing and operating
facilities. In addition, other exit costs (consisting of lease
termination and other contractual termination costs) will occur as a
result of the restructuring plan. Such activity recognized to-date is
as follows:
<TABLE>
<CAPTION> SEVERANCE
--------------------------- OTHER EXIT
AMOUNT HEADCOUNT COSTS
--------- --------- -----------
<S> <C> <C> <C>
Fiscal 1999 activity:
Charges to income $ 45.1 3,160 $ 7.3
Utilized (6.1) (260) --
--------- ------- --------
Balance, May 30, 1999 39.0 2,900 7.3
Fiscal 2000 activity, to date:
Charges to income 14.2 1,710 9.0
Utilized (16.3) (3,210) (5.8)
-------- ------ --------
Balance, November 28, 1999 $ 36.9 1,400 $ 10.5
======== ====== ========
</TABLE>
7
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999
(COLUMNAR DOLLARS IN MILLIONS)
3. INCOME PER SHARE
The following table reconciles the income and average share amounts
used to compute both basic and diluted income per share (share amounts
in millions):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------- ----------------------
NOV. 28, NOV. 29, NOV. 28, NOV. 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME $ 187.3 $ 219.0 $ 289.1 $ 328.3
=========== =========== =========== ===========
INCOME PER SHARE -- BASIC
Weighted average shares outstanding -- basic 476.2 469.8 474.7 469.3
=========== =========== =========== ===========
INCOME PER SHARE -- DILUTED
Weighted average shares outstanding -- basic 476.2 469.8 474.7 469.3
Add shares contingently issuable upon
exercise of stock options 3.4 7.1 3.9 6.8
----------- ----------- ----------- -----------
Weighted average shares outstanding -- diluted 479.6 476.9 478.6 476.1
=========== =========== =========== ===========
</TABLE>
4. INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
NOV. 28, MAY 30, NOV. 29,
1999 1999 1998
--------------- ------------ -------------
<S> <C> <C> <C>
Hedged commodities $ 1,410.3 $ 1,306.2 $ 1,531.3
Food products and livestock 1,405.0 1,144.7 1,271.8
Agricultural chemicals, fertilizer and feed 809.1 597.4 660.8
Other, principally ingredients and supplies 754.4 591.6 725.7
------------ ------------ ------------
$ 4,378.8 $ 3,639.9 $ 4,189.6
============ ============ ============
</TABLE>
5. CONTINGENCIES
In fiscal 1991, ConAgra acquired Beatrice Company ("Beatrice"). As a
result of the acquisition and the significant pre-acquisition
contingencies of the Beatrice businesses and its former subsidiaries,
the consolidated post-acquisition financial statements of ConAgra
reflect significant liabilities associated with the estimated
resolution of these contingencies. These include various litigation and
environmental proceedings related to businesses divested by Beatrice
prior to its acquisition by ConAgra. The environmental proceedings
include litigation and administrative proceedings involving Beatrice's
status as a potentially responsible party at 44 Superfund, proposed
Superfund or state-equivalent sites. Beatrice has paid or is in the
process of paying its liability share at 40 of these sites. Substantial
reserves for these matters have been established based on the Company's
best estimate of its undiscounted remediation liabilities, which
estimates include evaluation of investigatory studies, extent of
required cleanup, the known volumetric contribution of Beatrice and
other potentially responsible parties and its experience in remediating
sites.
8
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999
(COLUMNAR DOLLARS IN MILLIONS)
5. CONTINGENCIES (CONTINUED)
ConAgra is a party to a number of other lawsuits and claims arising out
of the operation of its businesses. After taking into account
liabilities recorded for all of the foregoing matters, management
believes the ultimate resolution of such matters should not have a
material adverse effect on ConAgra's financial condition, results of
operations or liquidity.
6. BUSINESS SEGMENTS
The Company has three segments, which are organized based upon similar
economic characteristics and the similarity of products and services
offered, the nature of production processes, the type or class of
customer and distribution methods. Packaged Foods includes companies
that produce shelf-stable and frozen foods. This segment markets food
products in retail and foodservice channels. Refrigerated Foods
includes companies that produce and market branded processed meats,
beef, pork, chicken and turkey. Agricultural Products includes
companies involved in distribution of agricultural inputs and
procurement, processing, trading and distribution of commodity food
ingredients and agricultural commodities.
Intersegment sales have been recorded at amounts approximating market.
Operating profit for each segment is based on net sales less all
identifiable operating expenses and includes the related equity in
earnings of companies included on the basis of the equity method of
accounting. General corporate expenses, goodwill amortization, interest
expense and income taxes have been excluded from segment operations.
The Company operates principally in the United States.
9
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999
(COLUMNAR DOLLARS IN MILLIONS)
6. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------
NOVEMBER 28, NOVEMBER 29,
1999 1998
------------ ------------
<S> <C> <C>
Sales to unaffiliated customers
Packaged Foods $ 2,035.4 $ 2,037.0
Refrigerated Foods 3,160.8 2,906.0
Agricultural Products 1,406.7 1,461.4
------------ ----------
Total $ 6,602.9 $ 6,404.4
============ ==========
Intersegment sales
Packaged Foods $ 12.0 $ 12.0
Refrigerated Foods 71.9 58.2
Agricultural Products 46.4 67.2
------------ ----------
130.3 137.4
Intersegment elimination (130.3) (137.4)
------------ ----------
Total $ -- $ --
============ ==========
Net sales
Packaged Foods $ 2,047.4 $ 2,049.0
Refrigerated Foods 3,232.7 2,964.2
Agricultural Products 1,453.1 1,528.6
Intersegment elimination (130.3) (137.4)
------------ ----------
Total $ 6,602.9 $ 6,404.4
============ ==========
Operating profit *
Packaged Foods $ 239.1 $ 294.2
Refrigerated Foods 123.8 113.9
Agricultural Products 87.4 98.1
------------ ----------
Total operating profit 450.3 506.2
Interest expense 77.4 91.0
General corporate expenses 55.0 42.3
Goodwill amortization 15.8 16.9
------------ ----------
Income before tax $ 302.1 $ 356.0
============ ==========
</TABLE>
- -------------------
* Thirteen weeks ended November 28, 1999 includes before-tax
restructuring/impairment charges and other restructuring-related
charges of $104.4 million. The charges were included in operating
profit as follows: $68.5 million in Packaged Foods; $17.9 million in
Refrigerated Foods; and $18.0 million in Agricultural Products.
10
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED NOVEMBER 28, 1999 (CONTINUED)
(COLUMNAR DOLLARS IN MILLIONS)
6. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------------
NOVEMBER 28, NOVEMBER 29,
1999 1998
------------ ------------
<S> <C> <C>
Sales to unaffiliated customers
Packaged Foods $ 3,771.4 $ 3,685.0
Refrigerated Foods 6,282.1 5,780.3
Agricultural Products 3,143.0 3,422.5
----------- -----------
Total $ 13,196.5 $ 12,887.8
=========== ===========
Intersegment sales
Packaged Foods $ 24.0 $ 25.1
Refrigerated Foods 124.2 111.4
Agricultural Products 175.6 150.5
----------- -----------
323.8 287.0
Intersegment elimination (323.8) (287.0)
----------- -----------
Total $ -- $ --
=========== ===========
Net sales
Packaged Foods $ 3,795.4 $ 3,710.1
Refrigerated Foods 6,406.3 5,891.7
Agricultural Products 3,318.6 3,573.0
Intersegment elimination (323.8) (287.0)
----------- -----------
Total $ 13,196.5 $ 12,887.8
=========== ===========
Operating profit *
Packaged Foods $ 409.4 $ 465.3
Refrigerated Foods 233.5 178.2
Agricultural Products 146.6 196.1
----------- -----------
Total operating profit 789.5 839.6
Interest expense 153.6 167.4
General corporate expenses 137.7 104.2
Goodwill amortization 31.9 34.2
----------- -----------
Income before tax $ 466.3 $ 533.8
=========== ===========
</TABLE>
- -------------------
*Twenty-six weeks ended November 28, 1999 includes before-tax
restructuring/impairment charges and other restructuring-related
charges of $151.5 million. The charges were included in operating
profit as follows: $97.3 million in Packaged Foods; $26.0 million in
Refrigerated Foods; and $28.2 million in Agricultural Products.
11
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results for the periods included in the accompanying condensed consolidated
financial statements. Results for the thirteen and twenty-six week periods
ended November 28, 1999 are not necessarily indicative of results that may be
attained in the future.
This report contains forward-looking statements. The statements reflect
management's current views and estimates of future economic circumstances,
industry conditions, company performance and financial results. The
statements are based on many assumptions and factors including availability
and prices of raw materials, product pricing, competitive environment and
related market conditions, operating efficiencies, access to capital and
actions of governments. Any changes in such assumptions or factors could
produce significantly different results.
OPERATION OVERDRIVE
During fiscal 1999, ConAgra commenced an initiative ("Operation Overdrive")
to improve margins and sales, streamline operations and to combine and
leverage ConAgra's strengths. In the fourth quarter of fiscal 1999, as part
of Operation Overdrive, the Company announced a restructuring plan covering a
36-month period aimed at consolidating capacity, streamlining operations and
improving profitability through margin improvement and expense reductions.
The total pre-tax charge of the plan is presently estimated at $880 million.
Pretax savings associated with the Company's restructuring plan are currently
projected at approximately $90 million in fiscal 2000, $150 million in fiscal
2001, and $200 million in fiscal 2002. These planned savings are primarily a
result of reducing duplicative efforts, lowering employee-related expense,
and reducing depreciation and amortization costs going forward. Accordingly,
the Company anticipates these savings will positively impact the Company's
"cost of goods sold" and "selling, administrative and general" line items
within its Consolidated Statements of Earnings.
Of the $880 million estimated charge, approximately $170 million of the
charge is expected to be a cash expense, offset partially by approximately
$80 million in cash proceeds from business and facility dispositions. The
Company expects to fund the net cash outlay associated with the restructuring
plan through cash generated by its ongoing operations. The approximate net
cash outlay, by year of associated expense, is as follows (dollars in
millions):
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000 FISCAL 2001
----------- ----------- -----------
<S> <C> <C> <C>
Cash expense $ (52) $ (91) $ (27)
Cash proceeds 16 53 11
------ ------ ------
Net cash outlay $ (36) $ (38) $ (16)
====== ====== ======
</TABLE>
During the second quarter of fiscal 2000, the Company recognized
restructuring/impairment charges and other restructuring-related costs
("restructuring charges") of $104.4 million ($64.7 million net of tax),
bringing total restructuring charges recorded to-date to $592.3 million. Of
the $104.4 million charge recognized in the second quarter, $28.2 million
will require cash expenditures resulting from contractual terminations,
employee-related costs and third-party consulting costs. The remaining $76.2
million is a non-cash charge resulting from asset impairments, accelerated
depreciation and inventory markdowns associated with the Company's
restructuring plan.
For fiscal 2000 year-to-date, the Company recognized restructuring charges of
$151.5 million ($93.9 million net of tax). Of the $151.5 million charge,
$31.0 million will require cash expenditures resulting from contractual
terminations, employee-related costs and third-party consulting costs. The
remaining
12
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$120.5 million is a non-cash charge resulting from asset impairments,
accelerated depreciation and inventory markdowns associated with the
Company's restructuring plan.
In association with the restructuring plan, the Company has, to date,
closed/sold a total of seven production facilities, 19 non-production
locations (e.g., storage, distribution, administrative, etc.) and eight
non-core businesses. The historical operating results and gains/losses
associated with sold businesses or facilities were not material.
The Company recorded net income of $187.3 million or $.39 diluted income per
share for the second quarter of fiscal 2000. Excluding restructuring charges,
the Company's net income was $252.0 million or $.53 diluted income per share.
The after-tax effect of restructuring charges on the Company's second quarter
of fiscal 2000 was $64.7 million or $.14 diluted income per share.
Fiscal 2000 year-to-date, the Company recorded net income of $289.1 million
or $.60 diluted income per share. Excluding restructuring charges, the
Company's net income was $383.0 million or $.80 diluted income per share for
fiscal 2000 year-to-date. The after-tax effect of restructuring charges for
fiscal 2000 year-to-date was $93.9 million or $.20 diluted income per share.
FINANCIAL CONDITION
ConAgra's earnings are generated principally from its capital investment,
which consists of working capital (current assets less current liabilities)
plus all noncurrent assets. Capital investment is financed with stockholders'
equity, long-term debt and other noncurrent liabilities.
Capital investment increased $213.5 million, or 3.2 percent, compared to May
30, 1999. Working capital increased $347.1 million, and noncurrent assets
decreased $133.6 million. The increase in working capital was primarily
caused by normal seasonal increases in accounts receivable and inventory
which was funded by short-term debt.
ConAgra invested $223.4 million in property, plant and equipment in the first
half of fiscal 2000 compared to $274.2 million for the first half of fiscal
1999. The decrease of $50.8 million, or 18.5 percent, is reflective of the
Company's ongoing efforts to critically analyze its capital expenditure
process. Investments in business acquisitions for the first half of fiscal
2000 were $14.3 million as compared to $401.4 million for the first half of
fiscal 1999.
The Company's objective is that senior long-term debt normally will not
exceed 30 percent of total long-term debt plus equity. For purposes of
computing the ratio, preferred securities of subsidiary company are treated
as equity due to their preferred stock characteristics. This objective was
met for all periods presented.
13
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OPERATING RESULTS
A summary of the period to period increases (decreases) in the principal
components of operations, both before and after restructuring charges, is
shown below (dollars in millions, except per share amounts).
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
NOV. 28, 1999 AND NOV. 29, 1998 NOV. 28, 1999 AND NOV. 29, 1998
------------------------------- -------------------------------
POST- PRE- POST- PRE-
RESTRUCTURING RESTRUCTURING RESTRUCTURING RESTRUCTURING
DOLLAR CHANGE DOLLAR CHANGE DOLLAR CHANGE DOLLAR CHANGE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 198.5 $ 198.5 $ 308.7 $ 308.7
Costs and expenses
Cost of goods sold 162.9 104.0 214.4 115.9
Selling, administrative and general expenses 72.9 57.6 141.9 122.6
Interest expense (13.6) (13.6) (13.8) (13.8)
Restructuring/Impairment charges 30.2 -- 33.7 --
---------- ---------- --------- ---------
252.4 148.0 376.2 224.7
---------- ---------- --------- ---------
Income before income taxes (53.9) 50.5 (67.5) 84.0
Income taxes (22.2) 17.5 (28.3) 29.3
---------- ---------- --------- ---------
Net income $ (31.7) $ 33.0 $ (39.2) $ 54.7
========== ========== ========= =========
Income per share -- basic $ (.08) $ .06 $ (.09) $ .11
========== ========== ========= =========
Income per share -- diluted $ (.07) $ .07 $ (.09) $ .11
========== ========== ========= =========
</TABLE>
In ConAgra's Packaged Foods segment, second quarter sales were consistent
with last year, but operating profit decreased 18.7 percent to $239.1
million, down from last year's second quarter operating profit of $294.2
million. Excluding restructuring charges, operating profit increased 4.6
percent, or $13.4 million. For the first half, sales increased 2.3 percent,
and operating profit decreased 12 percent to $409.4 million from last year's
first half operating profit of $465.3 million. Excluding restructuring
charges, the segment's operating profit increased 8.9 percent, or $41.4
million. The segment's second quarter and first half operating profit
improvement, excluding restructuring charges, were driven by strong
year-to-year performance improvement in ConAgra's Foodservice and Frozen
Prepared Foods units.
In the Company's Refrigerated Foods segment, second quarter sales increased
8.8 percent, and operating profit for the quarter increased 8.7 percent to
$123.8 million from $113.9 million in fiscal 1999's second quarter. Excluding
restructuring charges, operating profit increased 24.4 percent, or $27.8
million. First half sales increased 8.7 percent, and operating profit
increased 31.0 percent to $233.5 million from $178.2 million. Excluding
restructuring charges, the segment's first half operating profit increased
45.6 percent, or $81.3 million. The segment's beef and pork units achieved
sales and operating profit increases for both the second quarter and first
half of fiscal 2000, and were the primary drivers of the segment's improved
performance over the prior year.
In ConAgra's Agricultural Products segment, sales decreased 3.7 percent, and
operating profit decreased 10.9 percent from $98.1 million to $87.4 million
for the quarter. Excluding restructuring charges, operating profit increased
7.4 percent, or $7.3 million. First half sales in this segment decreased 8.2
percent, and operating profit decreased 25.2 percent from $196.1 million to
$146.6 million. Excluding
14
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
restructuring charges, the segment's first half operating profit decreased
10.9 percent, or 21.3 million. The segment's results continue to be
negatively impacted by unfavorable industry conditions as compared to the
prior fiscal year.
For the Company in total, net income was $187.3 million for the second
quarter, while diluted earnings per share were $.39, a decrease of $.07 from
the second quarter of fiscal 1999. Excluding restructuring charges, net
income was $252.0 million, while diluted earnings per share were $.53, an
increase of $.07, as compared to prior year's second quarter. As compared to
second quarter fiscal 1999, selling, administrative and general expenses
increased $72.9 million, or 11.1 percent, resulting primarily from an
increase in advertising and promotion costs, Operation Overdrive
implementation costs and information systems' integration costs. Interest
expense for the second quarter decreased by $13.6 million, or 14.9 percent,
as compared to the second quarter of fiscal 1999 due to the Company carrying
lower short-term debt balances.
For the first half of fiscal 2000, ConAgra's net income was $289.1 million,
while diluted earnings per share were $.60, a decrease of $.09 as compared to
the first half of fiscal 1999. Excluding restructuring charges, net income
was $383.0 million, while diluted earnings per share were $.80, an increase
of $.11 as compared to the first half of fiscal 1999. As compared to the
first half of fiscal 1999, selling, administrative and general expenses
increased $141.9 million, or 10.7 percent, resulting primarily from an
increase in advertising and promotion costs, Operation Overdrive
implementation costs and information systems' integration costs. Interest
expense for the first half of fiscal 2000 decreased by $13.8 million, or 8.2
percent, as compared to the first half of fiscal 1999 due to the Company
carrying lower short-term debt balances.
YEAR 2000
The Year 2000 ("Y2K") computer software compliance issues affect ConAgra and
most companies in the world. The Company has established a Y2K project office
and contracted with an independent consulting group to provide assistance
with regard to Y2K compliance. The Company's Y2K project covers both
traditional computer systems and infrastructure ("IT systems") and
computer-based manufacturing, logistical and related systems ("non-IT
systems"). The Y2K project has six phases: systems inventory, assessment,
renovation, validation, implementation and contingency planning. For both IT
and non-IT systems, the Company has completed all phases of its Y2K project.
ConAgra operates on a decentralized operating company ("OC") structure. As a
result of this OC structure, there are few IT systems and non-IT systems, the
failure of which could have a material effect on the Company as a whole. Such
material systems include general ledger, payroll, fixed assets and cash
management systems.
ConAgra's Y2K project also considers the readiness of significant customers
and suppliers. The Company does not have any suppliers or customers that are
material to its operations as a whole. Each OC is verifying the readiness of
suppliers and customers that may be significant for such OC. ConAgra's Y2K
project includes contingency plans that focus on processes exposed to
potential risk, and critical high availability systems. Joint contingency
plans between OC's and several major customers have been coordinated to
prevent uninterrupted service.
ConAgra has incurred approximately $52 million of Y2K project expenses to
date. No significant future expenses are expected to be incurred.
15
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Subsequent to January 1, 2000, ConAgra experienced no Y2K failures
having a material impact on the Company.
16
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk during the
twenty-six weeks ended November 28, 1999. For additional information, refer
to pages 38 through 40 of the Company's 1999 Annual Report to Stockholders,
incorporated by reference into the Company's annual report on Form 10-K for
the fiscal year ended May 30, 1999.
17
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
12 -- Statement regarding computation of ratio of earnings to fixed
charges
27 -- Financial Data Schedule
(B) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter covered by
this report.
CONAGRA, INC.
By:
/s/ James P. O'Donnell
------------------------------
James P. O'Donnell
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By:
/s/ Jay D. Bolding
------------------------------
Jay D. Bolding
Vice President and Controller
Dated this 11th day of January, 2000.
18
<PAGE>
CONAGRA, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
12 Statement regarding computation of ratio of 20
earnings to fixed charges
27 Financial Data Schedule 21
</TABLE>
19
<PAGE>
EXHIBIT 12
CONAGRA, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in millions)
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
NOVEMBER 28,
1999
------------
<S> <C>
Fixed Charges
Interest expense $ 172.9
Capitalized interest 2.8
Interest in cost of goods sold 13.0
One-third of noncancelable lease rent 19.8
-------------
Total fixed charges (A) $ 208.5
=============
Earnings
Pretax income* $ 466.3
Adjustment for unconsolidated subsidiaries (0.3)
Add fixed charges 208.5
Less capitalized interest (2.8)
-------------
Earnings and fixed charges (B) $ 671.7
=============
Ratio of earnings to fixed charges (B/A) 3.2
</TABLE>
- -------------------
* Pretax income includes $151.5 million of restructuring/impairment charges
and other restructuring-related charges. Excluding these charges, the "ratio
of earnings to fixed charges" was 3.9. See note 2 to the condensed
consolidated financial statements.
For the purpose of computing the above ratio of earnings to fixed charges,
earnings consist of income before taxes and fixed charges. Fixed charges, for
the purpose of computing earnings, are adjusted to exclude interest
capitalized. Fixed charges include interest on both long and short-term debt
(whether said interest is expensed or capitalized and including interest
charged to cost of goods sold), and a portion of noncancelable rental expense
representative of the interest factor. The ratio is computed using the
amounts for ConAgra as a whole, including its majority-owned subsidiaries,
whether or not consolidated, and its proportionate share of any 50% owned
subsidiaries, whether or not ConAgra guarantees obligations of these
subsidiaries.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-28-1999
<PERIOD-START> MAY-31-1999
<PERIOD-END> NOV-28-1999
<CASH> 9,600
<SECURITIES> 0
<RECEIVABLES> 2,613,500
<ALLOWANCES> 85,900
<INVENTORY> 4,378,800
<CURRENT-ASSETS> 7,221,000
<PP&E> 6,447,100
<DEPRECIATION> 2,887,400
<TOTAL-ASSETS> 13,577,600
<CURRENT-LIABILITIES> 6,604,400
<BONDS> 2,601,200
0
0
<COMMON> 2,620,400
<OTHER-SE> 424,100
<TOTAL-LIABILITY-AND-EQUITY> 13,577,600
<SALES> 13,196,500
<TOTAL-REVENUES> 13,196,500
<CGS> 11,078,800
<TOTAL-COSTS> 11,078,800
<OTHER-EXPENSES> 1,497,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,600
<INCOME-PRETAX> 466,300
<INCOME-TAX> 177,200
<INCOME-CONTINUING> 289,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,100
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.60
</TABLE>
